Portfolio

Thursday, April 27, 2017

Praxair(PX) reported Q1 results with EPS of $1.35 on revenues of $2.7 billion. The company reported a huge 28% increase in operating cash flow to $710 million. For Q2 the company expects EPS of $1.38-1.43 and for 2017 $5.53-$5.78(GAAP). Shares are flat for the day. Here is what management had to say.

Since I did not do a review last week I'm going to combine some of last weeks data and more recently released reports. This week we had a lot of activity with earnings reports. I'll get to the economic data first.

Wednesday, April 26, 2017

Today we received a slew of earnings reports. This morning we received reports from Hershey's(HSY), Procter & Gamble(PG), and this afternoon will be Paypal(PYPL), and Boston Beer(SAM).

Hershey's(HSY) reported Q1 earnings with EPS of $0.58 on revenues of $1.87 billion. Overall sales increased 2.8% which is in-line with expectations and the industry overall. Nothing to exciting in this quarter so it's business as usual. The stock however has traded negative all day, and dipped below $107 for a bit. Here is what the CEO had to say.

Tuesday, April 25, 2017

Today Costco(COST) announced a special dividend of $7.00 per share. That's in addition to a $0.05 increase in the regular quarterly dividend of $0.45/share to $0.50/share. To receive an 11.1% raise plus a special dividend which comes out to a 4% payment based on today's close of $172.68. You can read the company press release here. The stock is up 3% in after hours trading.

The company stated the special dividend will amount to a $3.1 billion dollar payment to shareholders. That's quite a bit of money. For fiscal 2016 the company paid paid out $746 million to shareholders via dividends. According to the Costco's 2017 Q2 balance sheet they had $4.7 billion in cash on hand. But the company stated they were funding this dividend with additional borrowings. Once again according to Costco's recent balance sheet the company has approximately $5 billion worth of debt. Of that $2.2 billion is current. The company most recently paid a special dividend of $5 in 2015.

We received earnings today from favorite 128 year railroad equipment provider Wabtec(WAB). The company reported EPS of $0.77 on revenues of $916 million. The company also completed it's large acquisition of Faiveley Transport. Then proceeded to buy Aero Transport a maker of hatch covers and outlet gates. Then at the end of the quarter they acquired Thermal Transfer a maker of heat exchanger's. The latter two acquisitions will represent an increase of $65 million to annual sales initially. Sales in the Transit group grew to $568 million and represented 62% of sales on the back of the Faiveley acquisition. Freight sales lagged due to lower freight car and locomotive deliveries, plus less spending on control related equipment and services. It will be important to see that type of activity pick back up in the next couple quarters since those are big purchases by railroads, and are a direct indicator of economic health.

The stock has lagged for us lately, but so far is up close to 1% on the day. The company re-affirmed guidance for EPS of $3.95-$4.15. Here is what the CEO had to say“Our first quarter adjusted earnings were in line with expectations, and we expect improvement during the year. As we work to integrate Faiveley and our other recent acquisitions, we are managing our costs aggressively based on market conditions. We continue to invest in our balanced growth strategies and expect to benefit from our diversified business model and rigorous application of the Wabtec Excellence Program.”

Friday, April 21, 2017

Visa(V) reported fiscal year 2017 Q2 results later yesterday. EPS came in at $0.18 on revenues of $4.5 billion. The company reported GAAP net income of $430 million, but adjusted net income of $2.1 billion due to special items related to Visa Europe reorganization costs. The company also announced a new $5.0 billion share repurchase program. The stock almost hit $94/share today but has since backed down to $91-$92 as of writing. I will note that is a new all time high. Here is what the CEO had to say.

“In the face of geo-political uncertainty, Visa continues to execute well against our operating plan and strategic priorities, delivering sustained growth across nearly every part of our business,” said Alfred F. Kelly, Jr., Chief Executive Officer of Visa Inc. "Robust growth in payments volume, cross-border volume and processed transactions drove better than expected results. Looking ahead, we are continuing our efforts across the globe to electronify commerce and digitize economies to the benefit of consumers and societies alike.”

Thursday, April 20, 2017

As most of you know by now IBM(IBM) reported Q1 earnings that showed the company struggling with lower revenues for 20 quarters in a row. That sent shares reeling back to $160 on heavy volume. This has been tough stock for many investors. Especially those that bought back in 2012-2013 when shares were trading at highs. I was fortunate enough to add some to my personal portfolio, which was accounted for under the old tracking method, back in November 2015 when shares were trading near lows. At that time I bought at $133.93/share. Still it's hard to own a stock that sees falling revenues year after year.

The bright side is the company has been increasing it's dividend and reducing it's share count.Since Q1 2012 the dividend is up over 86%. Back then the quarterly payout was $0.75 and now stands at $1.40, but I think we can expect a bump for Q2. Here is the total shares outstanding since 2012.

As you can see the share count has been reduced by 17%. That helps keep EPS propped up in the face of falling revenues. Still it's not how you want to see your company survive. With the most recent quarter coming in with EPS of $1.85 on revenues of $18.1 billion it's not exactly looking to be another bumper year with full year EPS forecast at $11.95. I still believe in their Watson program, and I'm impressed with how well they ramped up strategic imperatives which now represent 42% of company sales. Most other companies would have failed by now. I'll be patient for the remainder of the year, but patience runs thin eventually.

Phillip Morris International(PM) reported Q1 2017 results this AM. Q1 EPS came in at $1.02 on revenues of $16.6 billion which is down 1.4%. The shares have been rocked so far today, and at one point were down more than 4%. The reason is the large decline in their traditional cigarette business which saw volumes shrink by 11.5%. That's an acceleration from recent quarters, and the growth in their Reduced Risk Products including HEETS and Heatsticks has not been enough to offset the fall. The company guided full year results at $4.84-$4.99. I'll admit I'm slightly worried about that falloff. Fellow portfolio member Altria(MO) has also taken a hit today. Here is what the CEO had to say.

“Our results were in line with our previously communicated expectation of a relatively weak first quarter, due to lower cigarette volume -- primarily related to low-price brands in specific markets where the impact on our profitability was limited -- and certain timing factors," said André Calantzopoulos, Chief Executive Officer.

"We are fully on track to deliver our full-year EPS guidance, driven by robust pricing and accelerating IQOS volume growth. We anticipate a combined cigarette and heated tobacco unit volume decline of 3% to 4% for the full year.

One surefire fundamental bet the next decade will be electronic payments. With a few countries in Europe and South America moving towards cashless systems, and recent moves in India to curb the use of cash for transactions it only makes sense for this sector to have a tailwind behind it. Below is the performance of portfolio holdings Visa(V), MasterCard(MA), and PayPal(PYPL) alongside the S&P 500's Total Return Index(SPXTR) which includes dividends. Note Visa and MasterCard pay dividends but that's not reflected in the chart. Either way all 3 picks have been outperforming the market YTD. Let's hope it continues.

Tuesday, April 18, 2017

If there is any takeaway from this chart it's that people are definitely rushing to get in line to lend their money to the US Government for 10 years, and stampeding out of the line to lend their money for the next 1 year. Below is the chart showing the relative performance of the US Governments 1 year and 10 year debt obligations. The 1 Year US Treasury yield has been on an absolute tear since March.

Saturday, April 15, 2017

I'll be keeping this one short and sweet as I celebrate Easter Weekend. Today is normally the final day to file your 2016 taxes, unless of course you file for an extension. However procrastinators fear not as you have until Tuesday April 18th this year to square up with Uncle Sam.

There was a slew of lower tier economic reports this week. One that I've been watching more closely is Consumer Confidence provided by the Conference Board, and Consumer Sentiment which is calculated by the University of Michigan. It's oft understated how much of our economy is based upon expectations and

Tuesday, April 11, 2017

I've made some changes to the way I account for portfolio performance for 2017. Originally I was tracking the portfolio since inception(October 2015). This created a couple problems. For one it was tedious to track everything, and it wasn't exactly quite clear how well the portfolio was doing on a yearly basis against our benchmark SPDR S&P 500 Index ETF(SPY). So I started calculating since inception and the yearly number. That's confusing then for me to explain the performance of each one.

Saturday, April 8, 2017

Well the big news this week was President Donald Trump firing off Tomahawk missiles, 59 to be exact, into Syria. I won't comment on the political ramifications of the whole ordeal, but it makes you think of all the innocent lives lost in wars over the centuries. Sad.

Other than that we had the FOMC minutes released from the meeting where interest rates were raised. What was interesting for most people was the Fed actually discussed it's balance, and taking steps to reduce it's size this year. Any contraction in the Fed's balance sheet would actually be a deflationary/"contractionary" for the economy. The reason being is this action would actually take money out of the economy. Here is part of the Fed's comment

"...most participants anticipated that gradual increases in the federal funds rate would continue and judged that a change to the Committee’s reinvestment policy would likely be appropriate later this year.”

What did get overshadowed this week was the ISM Services Index that came in at 55.2 under expectations for a 57.0 reading. While not a huge deal since anything over 50 shows expansion. Services still account for the lions share of our economy. If we start seeing readings closer to 51-52 then we can start getting concerned. The ISM Index was a bit stronger at 57.2 vs expectations of 57.0.

The big report this week was the bad jobs number we received. NFP showed a total gain of 89k jobs. That's way below expectations for 175k, and paltry compared to the prior reading of 221k. Not exactly a great number especially when our Chief keeps talking about bringing the jobs back. For now we can chalk it up as a one off.

So how did the markets react to all this? Actually quite well. The S&P had some down time this week, but only ended up -0.3% lower despite all this big news. Not exactly what many people would expect. If this were 4-5 years ago I think we would have seen some big 1-3% moves for the week.

Earnings seasons starts in earnest next week. We received a some news reports from a few portfolio holdings.

McCormick(MKC) which got pummeled after its earnings report, had better reception after it's investor's day. The stock hasn't recovered all it's losses since earnings last week. With projected EPS growth of 9-11% there is still a lot to get excited about for this blue chip.

Costco(COST) reported same store sales growth that really blew away expectations. Total company sales for March were up 6%, and when excluding gasoline and foreign exchange fluctuations sales were up 5%. Those are some solid numbers from consumers that have continued to be fickle, and at odds with other retailers still struggling with the "Amazon" effect. That's why Costco is in the portfolio. Sure they'll lose some sales, but it occupies a nice niche that's not easily replicated online. I'm expecting good things from this company the next few years.

I'm still working on updating the portfolio results for Q1. I'm updating a lot including another performance tracking mechanism to the portfolio. You'll see what I mean when I get the results out in a couple days.

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